The FCA’s Interim Report on its Mortgages Market Study was certainly worthy of note for any number of reasons, and I’m aware that many believe it gives the industry something of a ‘clean bill of health’.
Certainly, in areas of procuration fee bias – which I suspect has always been believed by some within the regulator – there appears to be no charge left to answer. The regulator found no evidence of this, and perhaps now we can put to bed – once and for all – the notion that advisers are purely recommending based on the level of fee available to them. That has never been the case, and it perhaps says more about those that thought this in the first place, than advisory practitioners themselves.
While the Interim Report has been broadly welcomed, there does appear to be some areas of concern, not least around the regulator’s plans to provide customers with more product ‘certainty’ at the start of the mortgage process. The belief seems to be that some consumers are utterly clueless about what product they might be suitable for, and what they might be able to secure.
When you start from this assumption, then I’m not surprised that you get to a point where you want to deliver greater certainty, however I’m not entirely convinced that there’s a major issue to confront here. Let’s look at all the information hubs and product platforms and tools consumers already have access to – a cursory use of a mortgage calculator would tell them what sort of loan level they might achieve, add in a mortgage ‘best buy’ tool and they’ll be able to narrow their search down.
And that is of course before they even take themselves off to a mortgage adviser, who will be able to carry out the full factfind, narrow that search down even further, rule out those lenders whose service may currently not be up to scratch, take into account product incentives like cashback, etc, and generally deliver the complete certainty that customers are actually looking for.
My view is that there are plenty of options and avenues available to consumers in order to give them an idea of what mortgage is achievable for them, but if they want total certainty and (let’s not forget) total protection, then they’ll be best off using the services of a broker.
Attempts to provide ‘early doors’ certainty might end up giving consumers a completely false sense of security about what products are available to them and suggest to them that they don’t need an adviser, because, “The FCA says this delivers ‘certainty’ and therefore we may as well go direct.” This would be a major step backwards and I’m not sure chimes with anything that the Mortgage Market Review (MMR) set out to achieve.
There is also (in my view) a worrying theme within the report, which focuses far too much on the ‘cheapest deal’ and how consumers are over-paying £500 each year because they’re not on that ‘cheapest deal’. It suggests this is the case regardless of whether the consumer has received advice or not, and again this links into the product ‘certainty’ theme.
Like the proc fee bias debate, I assumed the Interim Report would put to bed once and for all the notion that consumers should simply be aiming to secure the ‘cheapest deal’. Indeed, back when the MCOB rules were being debated, the industry argued vociferously that the rules should not demand an ‘always cheapest’ advice process, because this simply did not take into account all considerations when looking at the right mortgage for a client. As many pointed out back then – and it appears this needs repeating now – what about a lender’s service levels? What about the fees? What about the ERCs? What about the customer’s intentions in the short and medium term? These will all be taking into account when an adviser arrives at a recommendation – these are considerations which could be far more important than price to all concerned.
Perhaps those who worked at the regulator back then, have moved on? Perhaps that corporate memory needs replenishing? We are nearly 14 years on from the introduction of MCOB – it is odd that we need to be fighting the same battles again when that argument appeared won a long time ago. There is a real danger that we damage the advice process and the protections of consumers by moving down this ‘certainty’ and ‘cheapest at all costs’ route. As an industry, we clearly need to make the case strongly again.
Richard Adams is managing director of Stonebridge Group